Recent global developments, including shifts in US tariff policies and the suspension of USAID funding, have created operational challenges for both business and non-business enterprises. In response to these challenges, many organizations in Cambodia have been forced to rethink their structures – some adjusting operations, others suspending them entirely.

For HR and mobility managers, the most immediate and inevitable concern is workforce restructuring. Importantly, workforce restructuring does not always mean reducing headcount. There are several strategies to manage labour costs while maintaining the current workforce, allowing organizations to adapt during times of uncertainty while continuing to support their people.

This article offers a practical roadmap for enterprises in Cambodia considering workforce restructuring. It outlines key alternatives to layoffs and, when necessary, provides guidance on how to approach layoffs in a compliant and strategic manner.

Exploring Alternatives to Layoffs

For HR and mobility managers, exploring alternatives to layoffs can help maintain workforce stability while managing costs. Below are approaches commonly used in Cambodia:

Salary reductions by agreement

Employers and employees may mutually agree to reduce salaries as a cost-saving measure. However, this requires explicit written consent from each employee. Any wage adjustment constitutes a modification of the employment contract and must be documented formally – typically through a written amendment to the contract. HR managers should ensure these agreements are clear, individualized, and properly archived to remain compliant with Cambodian labour regulations.

Voluntary unpaid leave or reduced hours

While the Cambodian Labour Law does not explicitly provide for unpaid leave or reduced hours, such arrangements are permitted when both employer and employee agree. Under a mutual agreement, employees may take voluntary unpaid leave or work reduced hours, with a corresponding adjustment in remuneration. These changes should be documented through a written amendment to the employment contract, clearly outlining the duration and terms of the revised arrangement.

Temporary suspension of employment

Article 71 of the Cambodian Labour Law allows employers to suspend employment contracts due to serious financial or material difficulties or, in certain cases,  force majeure.

When a business faces significant economic hardship or operational disruptions,  employment contracts may be suspended for up to two months. To do this, employers must demonstrate clear evidence of financial or material distress and notify the labour inspector. Suspension cannot be implemented unilaterally or informally.

A suspension generally pauses the core obligations of the employment contract, meaning the employee is not required to work, and the employer is not required to pay wages – unless otherwise stipulated in the law, employment contract, or internal work rules. In practice, employers should enter into a written agreement with the employee, and, depending on the circumstances, seek prior approval or submit a notification to labour authorities.

Failure to follow the proper legal procedure can result in liability, including back pay and continued benefits throughout the suspension period. HR leaders should proceed cautiously and document each step to ensure full compliance.

Redeployment across entities

For multinational companies, redeployment of employees from one branch to another, often in different jurisdictions, can be a strategic way to retain talent while managing local labour costs. However, this approach is legally complex and must be carefully planned.

Cambodia Labour Law does not explicitly recognize the concept of employee transfer between separate legal entities. As such, any cross-border redeployment generally involves terminating the Cambodian employment contract and entering into a new one in the destination jurisdiction. To ensure alignment on key issues, such as termination compensation, recognition of seniority, and continuity of benefits, many companies use a tripartite agreement involving the Cambodian entity, the foreign entity, and the employee.

Voluntary early retirement programs

Cambodia does not impose a mandatory retirement age for employees in the private sector. However, companies may offer a voluntary early retirement program as part of their workforce restructuring strategy.

Employees may opt into such programs by mutual agreement. To encourage participation, employers often offer additional contractual incentives beyond the legally required termination compensation. These programs can be an effective way to reduce workforce size while maintaining goodwill and avoiding involuntary terminations.

Managing Terminations Legally and Fairly

Legitimate grounds for termination

Under the Cambodian Labour Law, a fixed duration contract (FDC) cannot be terminated before its expiry date, except: (i) by mutual agreement signed before a labour inspector; (ii) due to a force majeure event; or (iii) for serious misconduct.

An unspecified duration contract (UDC) can be terminated with cause on these grounds: (i) a valid reason related to the employee’s aptitude or behavior based on operational needs; (ii) force majeure; or (iii) serious misconduct.

The term “valid reason” stated under Article 74 of the Labour Law is vague and subject to different interpretations by the labour authorities or courts. It can mean poor performance or behavior (after due process), which does not align with operational requirements of the enterprise. There is no clear guidance, so each case is assessed individually.

The Ministry of Labour’s March 2024 Notification clarified that termination due to bankruptcy is considered with cause, exempting employers from paying damages because it does not affect the employee’s reputation or performance.

Collective terminations and compliance steps

If more than one employee is terminated due to reduced business activity or internal reorganization (such as automation, funding freezes, or fewer orders), the employer must follow collective termination procedures, which include:

  1. Determining the order of termination based on qualifications, seniority, and family obligations;
  2. Consulting in writing with employee representatives or unions and considering their feedback before announcing the termination;
  3. Notifying the Ministry of Labour and Vocational Training (MLVT) at every step.

Non-compliance can lead to reinstatement orders or damages.

Mutual Separation Agreements

Termination by mutual agreement is a practical option. For FDCs, agreements must be signed by both parties before a labour inspector. While the Cambodian Labour Law does not specify compensation for mutual termination, employees should receive at least the minimum statutory and contractual entitlements.

Required compensation and benefits

When terminating employment contracts, the employer must pay statutory compensation, including final salary, accrued unused leave, and other benefits to the terminated employees. Additional compensation depends on contract type and termination reason:

  • For FDCs, severance pay is at least 5% of total salary and benefits during employment unless collective agreements state otherwise. Premature termination without cause requires compensation equivalent to salary until contract expiry.
  • For UDCs terminated with cause (except serious misconduct), employers must provide prior written notice or pay in lieu, plus seniority payments.
  • For termination without cause, employees may claim damages equal to accrued seniority payments, and can seek higher damages if harm is demonstrated.

Protections for certain employees

Certain employees have special protection against termination, including shop stewards, candidates for steward positions, and founding union members, with protection periods varying by role. Termination of these employees requires prior MLVT approval.

Employers are also prohibited from terminating the employment contracts of female employees who are pregnant or within one year after giving birth.

Termination based on race, color, sex, creed, religion, political opinion, origin, ancestry, social origin, union membership, or union activities is illegal under Cambodian law.

Key Takeaways for HR and Mobility Leaders

Workforce restructuring in Cambodia requires a careful balance between operational needs and legal compliance. Employers should evaluate every option, from salary adjustments and redeployment to early retirement programs, before proceeding with layoffs. When terminations are unavoidable, understanding the legal framework, employee protections, and proper documentation process is essential.

By planning strategically and documenting each step, organizations can minimize the risk of disputes, preserve employee trust, and maintain compliance with Cambodia’s labour laws. HR and mobility leaders play a critical role in guiding this process, ensuring decisions are both business-driven and people-focused.

Ultimately, a well-managed restructuring can strengthen organizational resilience, uphold fairness, and position the company for sustainable recovery and growth in challenging times.

Published 25 NOVEMBER 2025

Author: DFDL